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Module Code: ACFI 3221

ONLINE OPEN BOOK ADVANCE EXAMINATION INSTRUCTIONS

Session: 2021/22

Faculty of: Business and Law

Programme / Course: Business and Law

Level: 6
Subject / Module Title (including module code):

ACFI3221 Advanced Financial Reporting

Date of Exam:

Duration: 2 hours (+ 30 minutes)

ONLINE ASSESSMENT – OPEN BOOK RESTRICTED TIME LIMITED MOCK EXAM

INSTRUCTIONS
This mock exam will be an open book assessment and it must be submitted on line before
the submission cut off time and date indicated below.

Section A – COMPULSORY – 1 Question (60 marks)

Section B – Answer TWO questions out of Three (40 marks)

Please follow all instructions carefully.

 You must prepare your answers in a single word document so that it can be submitted as a
single document via Turnitin.
 Please save the document in the style “ACFI3221”
 You may submit your answers at any time up to the submission time, but you may not
resubmit once your answers have been uploaded.

The exam paper will be released at 9am (GMT Time) on 12 May 2022 on the Module
Blackboard site.
You will have 2.5 hours to complete your paper.
Submission date and time: 12 May 2022 by 11:30 am (GMT Time).
If you have any questions or queries regarding the examination, please contact your Module
Leader in advance. You can also find more information, advice and support on the Student
Gateway.
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Module Code: ACFI 3221

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Module Code: ACFI 3221

Section A – COMPULSORY
Below are the income statements and movements on retained earnings
for Aemilia Plc, Livia Limited and Valeria for the year ended 30 April
2014 together with statements of financial position at that date.

Statements of Profit or Loss for the Year Ended 30 April 2014

Aemilia Livia Valeria

£000 £000 £000
Revenue 32,500 12,780 24,000
Cost of Sales 15,675 8,220 14,400

Gross Profit 16,825 4,560 9,600

Operating Expenses 5,642 2,355 4,800

Operating Profit 11,183 2,205 4,800

Finance Income 960 120 –
Finance Expense 1,065 225 –

Profit Before Taxation 11,078 2,100 4,800

Income Tax 2,768 420 1,200

Profit for the Year 8,310 1,680 3,600

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Module Code: ACFI 3221

Movement on Retained Earnings for the Year Ended 30 April 2014

Aemilia Livia Valeria

£000 £000 £000
Retained Earnings:
At 1 May 2013 28,625 1,000 8,000
Profit for the Year 8,280 1,680 3,600
Dividends Paid and Payable (3,400) - (1,200)

At 30 April 2014 33,505 2,680 10,400

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Module Code: ACFI 3221

Statements of Financial Position at 30 April 2014

Aemilia Livia Valeria

£000 £000 £000

Non-Current Assets

Property, Plant and Equipment 50,920 11,800 11,960

Intangible assets 4,000 - -

Investments 17,810 120 1,255

72,730 11,920 13,215

Current Assets 25,685 4,780 6,080

Total Assets 98,415 16,700 19,295

Equity

Ordinary Share Capital 12,500 1,000 5,000

Retained Earnings 33,505 2,680 10,400

Total Equity 46,005 3,680 15,400

Current Liabilities 18,731 5,400 2,675

Non-Current Liabilities 33,679 7,620 1,220

Total Liabilities 52,410 13,020 3,895

Total Equity and Liabilities 98,415 16,700 19,295

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Module Code: ACFI 3221

Notes to the Above Financial Statements

I Share Capital
 The ordinary share capitals of Aemilia, Livia and Valeria are
divided into shares with a par value of 50 pence each

II Livia Limited
 On 1 September 2013 Aemilia paid £1,500,000 to acquire 700,000
ordinary shares in Livia Limited
 On 1 September 2013, the ordinary shares of Livia not acquired by
Aemilia Plc were valued at £2 each
 Livia’s profits accrue evenly throughout the year
 Since acquisition, Livia has sold goods which had cost them
£1,600,000 to Aemilia. Livia implements a profit margin of 20% on
all sales. Half of these goods remain in Aemilia’s accounts.
 Livia did not declare a final dividend

V Valeria
 Aemilia acquired 8,000,000 ordinary shares in Valeria on 1 January
2014 in a share exchange of one share in Aemilia for two shares in
Valeria plus £0.50 per acquired Valeria share in cash. The cash
consideration has been recorded by Aemilia, however the share
issue has not yet been recorded.
 Valeria’s profits accrue evenly throughout the year
 On 1 January 2014, the ordinary shares of Aemilia were valued at
£2.80 and the ordinary shares of Valeria were valued at £1.50.
 At the date of acquisition, it was agreed that the fair value of
Valeria’s buildings was £600,000 higher than book value. This fair
value increase has not been incorporated into Valeria’s books of
account nor into Valeria’s financial statements. At the date of
acquisition, it was agreed that Valeria’s buildings had a remaining
useful economic life of 10 years
 The intangible assets of Aemilia consist entirely of development
costs. On the date of Valeria’s acquisition, they determined that
Valeria had £2,000,0000 of development costs that required
capitalisation under IAS 38. On 30 April 2014, this total had
increased to £2,400,0000. These amounts had been previously
expensed to the statement of profit or loss.
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Module Code: ACFI 3221

 During the four months since acquisition, Valeria has sold goods
with a cost of £1,000,000 to Aemilia at a mark up of 40%. At 30
April 2014, the inventories of Aemilia include goods purchased
from Valeria at a cost to Aemilia of £350,000.
 At the year end, the current accounts of Aemilia and Valeria
showed a balance of £260,000 owed by Aemilia to Valeria. Current
accounts are included in current assets and current liabilities in the
statements of financial position above
 Valeria declared a total dividend for the year of £1,200,000 on 30
April 2014. Aemilia Plc has taken account of its share of this
dividend receivable in its income statement and statement of
financial position above. Aemilia has credited all of this dividend
receivable to finance income and recorded the full amount
receivable in current assets in the above financial statements.
Dividends receivable are included in current assets and dividends
payable are included in current liabilities

VI Goodwill
 Positive goodwill is carried at cost and is reviewed annually for
impairment
 Negative goodwill is credited directly to retained earnings
 An impairment review of goodwill had been carried out at the year
end and had concluded that there had been an impairment loss of
£100,000 in the investment of Livia. Valeria’s goodwill had also
been impaired by £200,000.
 Impairments should be treated as an operating expense
 It is group policy to value non controlling interests at their fair value

YOU ARE REQUIRED TO:

Prepare the consolidated statement of profit or loss for Aemilia Plc for
the year end 30 April 2014 and the consolidated statement of financial
position for the group as at 30 April 2014.
(60 marks)
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Module Code: ACFI 3221

Section B
Answer any TWO questions from this section

Question 2
(a) With reference to IAS 41 “Agriculture” define the following:
i. Agricultural activity
ii. Biological assets
iii. Biological transformation
iv. Bearer plants
v. Agricultural produce
(5 marks)

(b) Archer Ltd is a farming company which owns the following assets.
Discuss how each asset will be classified, how it will be valued in
the financial statements and state the relevant accounting
standard that will be used in its valuation:
i. A herd of sheep. The sheep are aged between two and five
years and are kept to produce wool.
ii. An orchard of apple trees. The trees were planted several
years ago and the fruit is harvested each year for sale to
customers. When a tree dies, it is cut down and burnt.
iii. A store of apples ready for sale.

(8 marks)
(c) Hoggett Ltd owns a dairy herd.
At the 31 March 2020, the herd contained 75 cattle that were two
years old and 50 cattle that were one year old.
During the year ended 31 March 2021, 30 calves were born. None
of the animals died during the period.
The fair values less costs to sell of the cattle were:

At 31.3.20 At 31.3.21
£ £
New born calves 75 80
One-year-old cattle 95 100
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Module Code: ACFI 3221

Two-year-old cattle 105 125

Three-year-old 140 155
cattle

YOU ARE REQUIRED TO:

Calculate the values of the herd at 31 March 2020 and at 31

March 2021 and reconcile the fair values in accordance with IAS
41.
(7 marks)

Total 20 marks
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Module Code: ACFI 3221

Question 3
(a) Explain the following terms:
(i) Hybrid financial instruments
(ii) ‘Relevance’ in financial reporting information

(b) B plc issued 10 million 5% convertible £1 bonds on 1 January 2021.

The holder has the right to convert these bonds into equity on the
basis of 1 fully-paid £1 share for every £1 bond held on 31 December
2025. The company credited the proceeds of £10m to non-current
liabilities. The interest paid on the bonds during the year has been
charged to finance costs in the statement of profit or loss for the year to
31December 2021. The market rate of interest for a similar bond with a
five-year term but with no conversion rights at 1 January 2021 was
7%.

YOU ARE REQUIRED TO:

Explain with relevant calculations how B plc should have accounted for
the convertible bond issue in the company’s financial statements for the
year ended 31 December 2021.
20 marks
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Module Code: ACFI 3221

Question 4

Changing the existing revenue recognition rules will provide a more

robust framework for addressing revenue issues.

YOU ARE REQUIRED TO:

Critically discuss the changes to revenue recognition standard.
20 marks